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SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: Domazet v Jure Investments Pty Limited
Citation: [2016] ACTSC 33
Hearing Date: 9 November 2015
Decision Date: 7 March 2016
Before: Mossop AsJ
Decision: See [94]–[95]
Category: Principal Judgment
Catchwords: EQUITY – rectification – trusts – solicitor’s error as to operation of rule against perpetuities – documents drafted on the basis of incorrect rule – whether rectification available to apply correct rule – whether intention as to terms of documents as drafted or to achieve a particular effect – rectification granted
Legislation Cited: Australian Capital Territory (Self-Government) Act 1988 (Cth), s 34.
Legislation Act 2001 (ACT), s 151(3).
Perpetuities and Accumulations Act 1985 (ACT), ss 3, 8(1), 9.
Property Law Act 1974 (Qld), s 209.
Cases Cited: Air Jamaica Ltd v Charlton [1999] 1 WLR 1399
Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374
Bush v National Australia Bank Ltd (1992) 35 NSWLR 390
Byrnes v Kendle (2011) 243 CLR 253
Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
GE Capital Finance Australasia Pty Ltd v Federal Commissioner of Taxation (2011) 219 FCR 420
Oates Properties Pty Ltd v Commissioner of State Revenue (2003) 53 ATR 308
Nemesis Australia Pty Ltd v Commissioner of Taxation (2005) 150 FCR 152
Re Butlin’s Settlement Trusts [1976] Ch 251
Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226
Texts Cited: Spry, Ian, The Principles of Equitable Remedies (Thomson Reuters, 9th ed, 2014)
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Halsbury’s Laws of England (Butterworths, 3rd ed, 1960) vol 34
Osborn’s Concise Law Dictionary (7th ed, 1983)
Parties: Proceedings 102 of 2015:
Jure Domazet (First Plaintiff)
Ivan Domazet (Second Plaintiff)
Jure Investments Pty Limited (First Defendant)
Doma ACT Pty Ltd (Second Defendant)
Helen Domazet (Third Defendant)
Betty Domazet (Fourth Defendant)
Mary Domazet (Fifth Defendant)
Susan Domazet (Sixth Defendant)
Commissioner of Taxation (Seventh Defendant)
Proceedings 103 of 2015:
Jure Domazet (Plaintiff)
Jure Investments Pty Limited (First Defendant)
Ivan Domazet (Second Defendant)
Helen Domazet (Third Defendant)
Betty Domazet (Fourth Defendant)
Mary Domazet (Fifth Defendant)
Susan Domazet (Sixth Defendant)
Doma ACT Pty Ltd (Seventh Defendant)
Commissioner of Taxation (Eighth Defendant)
Representation: Counsel
Mr J Hmelnitsky SC and Mr M O’Meara (Plaintiffs)
Mr L Livingston (Seventh Defendant)
Solicitors
Balazs Lazanas Welch (Plaintiffs)
Australian Government Solicitor (Seventh Defendant)
File Numbers: SC 102 of 2015
SC 103 of 2015
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MOSSOP AsJ:
Introduction
1. Mr Jure Domazet and Mr Ivan Domazet (SC102 of 2015) and Jure Domazet (SC103 of
2015) have brought proceedings concerning the Domazet Family Trust (Family Trust),
a trust created by trust deed dated 1 April 1980 (Family Trust Deed), and the Doma
Finance Trust (Finance Trust), a trust created by a deed of settlement made on 1
November 2005 (Finance Trust Deed).
2. Because these proceedings involve a number of different members of the Domazet
family I will refer, in these reasons, to Jure Domazet as Jure, Ivan Domazet as Ivan
and other members of the family by their first name. In doing so I do not intend any
disrespect.
3. The Doma Group is an ACT based family owned and controlled group of entities
founded by Ivan which carries on property related business activities (such as property
investment, property development and ownership, and operation of hotels and serviced
apartments) principally, but not exclusively, in the ACT. Jure Investments Pty Limited
(Investments), the trustee of the Family Trust, and Doma ACT Pty Limited (Doma
ACT), the trustee of the Finance Trust, are both members of the Doma Group.
4. The orders sought in each application are:
(a) In proceedings SC 102 of 2015, Jure and Ivan seek orders rectifying certain
instruments they made as directors of Doma ACT (as trustee of the Finance
Trust), on 17 December 2009, determining the date on which the Finance
Trust would vest and consequential declarations as to the vesting date of the
Finance Trust;
(b) In proceedings SC 103 of 2015, Jure seeks a declaration that, on the proper
construction of the Family Trust Deed, he together with his three sisters –
Betty Domazet (Betty), Mary Domazet (Mary) and Susan Domazet (Susan) –
are within the definition of “primary beneficiaries” in cl 1(a) of the Family Trust
Deed.
5. The defendants in proceedings SC 102 of 2015 are Investments, Doma ACT, Helen,
Betty, Mary, and Susan Domazet, and the Commissioner of Taxation. Each of these
defendants except for the Commissioner was represented by the solicitors for the
plaintiffs. The Commissioner neither consented to nor opposed the orders for
rectification, but made submissions in relation to the form of consequential declarations
and in relation to costs.
6. In proceedings SC 103 of 2015, the defendants were the same as in proceedings SC
102, except that Ivan was a defendant rather than a plaintiff. In these proceedings the
Commissioner submitted to the order sought, but did not submit in relation to costs.
7. I will deal first with the claims in proceedings SC 102 of 2015 for rectification of
documents and declarations.
The Finance Trust as a potential beneficiary of the Family Trust:
8. Clause 1(b)(iv) of the Family Trust Deed defines the term “General Beneficiaries” to
include:
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The trustee (in his capacity as such trustee) of any trust or settlement in which any
Beneficiary has an interest whether absolute or contingent or by way of
expectancy and whether liable to be defeated by the exercise of any power of
appointment or revocation or to be diminished by the increase of the class to which
that Beneficiary belongs which the Trustee may at any time and from time to time
nominate in writing as a General Beneficiary and whether or not such trust or
settlement is in existence at the date of this Deed but provided that the beneficial
interest in property provided by such trust or settlement shall vest within the
perpetuity period applicable to the trusts of this Deed.
(Emphasis added.)
9. A General Beneficiary may therefore include a trustee of a trust of which a Beneficiary
has an interest, so long as the trustee of the Family Trust nominates it as a General
Beneficiary, and only if it meets the proviso set out in the italicised words quoted
above.
10. The beneficiaries of the Finance Trust include Ivan, his wife Helen Domazet (Helen)
and their children – Jure, Betty, Mary and Susan: Finance Trust Deed, cll 3.1(a) and
(b). Ivan and Helen and “the Children of Ivan Domazet and Helen Domazet” are within
the definition of “Primary Beneficiaries” in cl 3 of the Family Trust Deed.
11. Therefore, Doma ACT, as trustee of the Finance Trust, will come within the definition of
“General Beneficiaries” in cl 1(b)(iv) of the Family Trust Deed if it is nominated in
writing and the Finance Trust satisfies the proviso appearing in the italicised portion of
cl 1(b)(iv) above, that is, if it vests within the perpetuity period applicable to the Family
Trust.
What perpetuity period applied to the Family Trust?
12. Clause 1(i) of the Family Trust Deed provides as follows:
“the perpetuity period” means that period beginning upon the date of this Deed and
ending upon a date determined in accordance with this sub-clause being
(i) where the applicable law provides by Statute for the specification of a
perpetuity period in years being a number of years not exceeding eighty (or
some other maximum number)
(A) eighty years (or such other maximum number of years) from the date
hereof, or
(B) such lesser number of years (if any) from the date hereof as may be
hereinafter specified.
(ii) where the applicable law provides for a perpetuity period under the rule
known in English law as “the rule against perpetuities”:
(A) the expiration of twenty one years from the date of the death of the last to
die of such of them the issue [sic] of the Late King George the Sixth as are
alive at the date of the execution of this Deed.
(B) such other date (if any) being a date which may validly be specified
hereinafter.
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13. For the reasons I explain below, the second of these two options was the applicable
one.
14. Clause 1(j) of the Family Trust Deed provides, in effect, that the applicable law is the
law of the Australian Capital Territory.
15. At the date of the Family Trust Deed (1 April 1980) the law of the Australian Capital
Territory included the “old rule” against perpetuities. That rule was described by Lord
Millett, giving the advice of the Privy Council in Air Jamaica Ltd v Charlton [1999] 1
WLR 1399 (Air Jamaica) at 1408, as follows:
The classic formulation of the Rule is stated in Gray on Perpetuities 4th Ed. (1942),
p.191. Its effect is that no interest is valid unless it must vest, if it vest at all, within
a period of a life in being at the date of the gift plus 21 years. The rule is applied
remorselessly. A gift is defeated if by any possibility, however remote, it may vest
outside the perpetuity period. It is not saved by the fact that, in the event, it vests
inside the period.
(This formulation of the rule was quoted with approval by Tamberlin J in Nemesis
Australia Pty Ltd v Commissioner of Taxation (2005) 150 FCR 152 at [25].)
16. The rule applicable in the Australian Capital Territory was changed in 1985. On 12
December 1985, the Governor General made the Perpetuities and Accumulations
Ordinance 1985 (No 65 of 1985) (Perpetuities Ordinance). The Perpetuities Ordinance
was notified in the Commonwealth of Australia Gazette on 19 December 1985. At self-
government it became the Perpetuities and Accumulations Act 1985 (ACT)
(Perpetuities Act): Australian Capital Territory (Self-Government) Act 1988 (Cth) s 34. I
will refer to it as the Perpetuities Act even though for some of the relevant period it was,
in fact, an ordinance.
17. Subject to certain irrelevant exceptions, the Perpetuities Act applied to settlements
taking effect after its commencement date: s 3. Section 8(1) of the Act provided that
the rule against perpetuities applicable to an interest created by a settlement was “80
years from the date the settlement took effect”. Section 9 of the Perpetuities Act
created the “wait-and-see rule”, namely, that an interest was treated as not infringing
the rule against perpetuities until such time as it became certain that it must vest, if at
all, after the end of the perpetuity period.
18. The Explanatory Statement for the Perpetuities Act stated as follows:
The purpose of this Ordinance is to modify the common law rule against
perpetuities, and the related rules against accumulations and perpetual
trusts, in order to make them less arbitrary in their operation and more
suited to present day circumstances.
On the grounds of public policy, the common law courts of the seventeenth
century developed criteria for disallowing some restrictions in settlements of
property, whereby individuals sought to tie up property for what were
considered to be excessive periods.
The rule against perpetuities (or remoteness of vesting as it is also known)
was that a disposition is invalid if it could possibly take effect later than 21
years after the death of a person alive when the gift was made. This rule
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applied not only to trusts as such but also to, for example, wills, leases and
option agreements.
Legislation to reform the common law rules has been enacted in several
other jurisdictions, including New Zealand and the United Kingdom (1964),
Victoria (1968), Western Australia (1969), Queensland (1974) and New
South Wales (1984). This Ordinance is mainly based on the N.S.W.
Perpetuities Act 1984. …
19. However, the reforms made by the Perpetuities Act occurred after the date of the
Family Trust Deed (1 April 1980). Accordingly, for the purposes of the application of cl
1(i) of the Family Trust Deed, the “perpetuity period” was that period specified in cl
1(i)(ii)(A) which is set out above, namely, the expiration of 21 years from the date of
death of the last to die of the issue of King George VI as were alive at the date of the
Family Trust Deed, no other date having been specified. The reference in the clause to
the “issue” of King George VI is a reference to his children, grandchildren and all other
lineal descendants: Osborn’s Concise Law Dictionary (7th ed, 1983); Halsbury’s Laws
of England (Butterworths, 3rd ed, 1960) vol 34, 612 [1070].
The vesting of the Doma Finance Trust
20. The Finance Trust Deed was made on 1 November 2005. Clause 13.1 of the Finance
Trust Deed provides as follows:
13.1 Termination Date
The Trust shall be wound-up and terminate on the first to occur of:
(ss) the date which the Trustee with the written consent of the Appointor
determines [sic];
(tt) 80 years from the date of this deed.
21. The numbering is as it appears in the document. Notwithstanding the numbering, there
were in fact only two alternative triggers for the termination of the trust.
22. For the purposes of paragraph (ss), Ivan is the Appointor of the Finance Trust: cl 7.1,
Finance Trust Deed. There is no evidence that prior to 2009 any date had been
determined under paragraph (ss).
What happened in December 2009?
23. The affidavit of Jure dated 20 April 2015 provided:
15. In or about 2009, I instructed Maxim Chartered Accountants, the accountants
for the Doma Group, to seek the advice of Cleary Hoare Solicitors (Cleary
Hoare) in relation to the taxation of capital gains made by Jure Investments as
trustee of the Domazet Family Trust.
16. During the course of obtaining this advice, I was informed that there were
concerns as to whether Doma ACT was properly nominated as a beneficiary
of the Doma Family Trust.
17. On 8 December 2009, Cleary Hoare sent me a letter providing certain
documents which were designed to ensure that Doma ACT, as trustee of the
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Doma Finance Trust, came within the definition of “General Beneficiaries” in
clause 1(b)(iv) of the Domazet Family Trust (Cleary Hoare letter)...
(Emphasis as in original.)
24. The affidavit then described various documents and the affidavit continued:
18. I was advised that to achieve this result it was necessary to ensure that the
Doma Finance Trust vested within the perpetuity period applicable to the
Domazet Family Trust. This was sought to be achieved by the Record of
Resolution seeking consent…, the Notice to the Appointer…, the Record of
Resolution re termination… and the Nomination by Trustee ... The documents
were to the following effect: …
25. The affidavit then set out a summary of the effect of the various documents.
26. The letter from Cleary Hoare Solicitors, a firm of solicitors based in Brisbane, dated 8
December 2009 which is referred to in Jure’s affidavit was as follows:
8 December 2009
Mr J Domazet
C/-Maxim Chartered Accountants
[address]
Dear Mr Domazet
DEED OF AGREEMENT BETWEEN DOMAZET FAMILY TRUST AND DOMA
FINANCE TRUST
We refer to the above matter and enclose the following documents:
1. Deed of Agreement between the Doma Family Trust and the Doma Finance
Trust;
2. Resolution to distribute trust capital representing the capital gain.
We also enclose the following documents:
3. Record of Resolution by the Director of Doma ACT Pty Ltd re seeking
Appointer’s consent;
4. Notice to the Appointer of the Doma Finance Trust;
5. Resolution by the Director of Doma ACT Pty Ltd; and
6. Nomination by Trustee;
7. Notice of appointment of additional beneficiaries.
We note that the ATO Practice Statement PS LA 2005/1 (GA) outlines taxation of
capital gains. The ATO has stated in this Practice Statement that it will accept a
capital gain to be assessed in the hands of a beneficiary provided the beneficiary
has a vested and indefeasible interest in the trust capital representing the capital
gain by or within two months of the end of the income year. To adopt this
approach (the capital beneficiary approach), the beneficiary must enter into an
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agreement in writing to use the capital beneficiary approach. The enclosed Deed
of Agreement has been prepared to satisfy this requirement.
The capital beneficiary approach can only be used if the beneficiary has a vested
and indefeasible interest in the trust capital representing the capital gain at the end
of the income year or has been allocated the capital gain. The extent of the capital
gain to which it can agree in accordance with the Practice Statement is the amount
to which it is entitled (i.e. the amount of capital gain distributed to it by the trustee
in the distribution minute). The resolution at paragraph 2 provides a vested and
indefeasible interest in trust capital representing the capital gain to the Doma
Finance Trust.
In order to make the appointment of capital as described in the previous
paragraph, it is necessary that the Doma Finance Trust is a beneficiary of the
Domazet Family Trust. The beneficiaries of the Family Trust include trusts in
which any beneficiary of the Family Trust has an interest (including a discretionary
interest) which is nominated in writing by the Trustee to be a General Beneficiary,
provided that the beneficial interest in property of such trust vests within the
perpetuity period of the Family Trust. The perpetuity period of the Family Trust
ends on 1 April 1980 [sic]. Documents 3 to 6 bring forward the vesting date of the
Doma Finance Trust to be within the perpetuity period for the Domazet Family
Trust. Document 7 then nominates the Doma Finance Trust as a beneficiary of the
Family Trust. Documents 3 to 7 should be executed prior to documents 1 to 2,
unless the Doma Finance Trust has validly been made a beneficiary at a prior
time.
(Emphasis added.)
27. The reference to 1 April 1980 is clearly an error. Having regard to the content of the
documents provided with the letter, what was clearly intended was a reference to 1
April 2060, 80 years from the date of the Family Trust Deed.
28. Documents 3 to 6 referred to in the above passage and my findings as to when they
were executed are as follows:
(a) Document 3: a Record of Resolution by the directors of Doma ACT (as trustee
of the Finance Trust) to the effect that Doma ACT desired to terminate the
Finance Trust on 31 March 2060 and that Doma ACT was empowered by cl
13 of the Finance Trust Deed, with the consent of the Appointor, to determine
an earlier date upon which the Finance Trust shall terminate (first Record of
Resolution).
The first Record of Resolution was signed by Jure and Ivan on 17 December
2009;
(b) Document 4: a “Notice to the Appointor” of the Finance Trust by which Doma
ACT provided the Appointor of the Finance Trust with notice that:
(i) it was empowered by clause 13 of the Finance Trust Deed, with the
consent of the Appointor, to determine an earlier date upon which the
Finance Trust shall terminate;
(ii) it desired to terminate the Finance Trust on 31 March 2060; and
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(iii) sought the Appointor’s consent to the proposed determination (Notice to
Appointor).
The Notice to Appointor was signed by Jure on behalf of Doma ACT as trustee
of the Finance Trust and Ivan’s consent as Appointor was indicated by his
signature on the bottom of the document. That was done on 17 December
2009;
(c) Document 5: a further Record of Resolution by the directors of Doma ACT (as
trustee of the Finance Trust) that:
(i) noted that Doma ACT desired to terminate the Finance Trust on 31
March 2060;
(ii) noted that Doma ACT was empowered by clause 13 of the Finance
Trust Deed, with the consent of the Appointor, to determine an earlier
date upon which the Finance Trust shall terminate; and
(iii) noted the consent of the Appointor had been sought and received
(iv) resolved to execute a Nomination by Trustee (second Record of
Resolution).
The second Record of Resolution was signed by both Ivan and Jure and dated
17 December 2009;
(d) Document 6: a “Nomination by Trustee” by which Doma ACT, pursuant to
clause 13 of the Finance Trust Deed, determined that the trust shall terminate
on 31 March 2060 (Nomination by Trustee). The Nomination by Trustee was
signed by Jure on behalf of Doma ACT and consented to by Ivan as
Appointor. The terms of the document make it clear that Doma ACT was
acting as Trustee of the Finance Trust. The document is undated but, having
regard to the dates on the other documents I find that it was signed on 17
December 2009.
29. As a result of the execution of the above documents, on 17 December 2009
Investments (as trustee of the Family Trust) was put in a position where it could appoint
the Finance Trust as a General Beneficiary pursuant to cl 1(b)(iv) of the Family Trust
Deed.
30. Document 7 provided with the Cleary Hoare letter was a “Notice of Appointment of
Additional Beneficiary”. The notice appointed the Finance Trust as a beneficiary of the
Family Trust pursuant to cl 1(b)(iv) of the Family Trust Deed. It was signed by Jure on
behalf of Investments on 17 December 2009.
31. The documents as executed ought to have had the effect of causing the Finance Trust
to become a general beneficiary of the Family Trust.
32. The consequence of that would have been to permit the Family Trust to deal with
capital gains in the manner contemplated by the ATO Practice Statement referred to in
the Cleary Hoare letter. Document 1 referred to in the Cleary Hoare letter was an
agreement designed to give effect to the capital beneficiary approach to the taxation of
capital gains in relation to a net capital gain of $39,780,445 made by the Family Trust
during the year ended 30 June 2008. Document 2 was a resolution of the directors of
Investments as trustee of the Family Trust in relation to that net capital gain.
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33. Having regard to the date of execution of the various documents, namely 17 December
2009 (and the correspondence to which I refer below in relation to costs), there was no
contention in these proceedings that these documents would have been effective in
relation to the financial year ending 30 June 2008. They are referred to here simply in
order to understand the purpose and intended effect of the documents which are now
sought to be rectified.
What went wrong?
34. The documents set out above did not have the effect of ensuring that the Finance Trust
vested within the perpetuity period applicable to the Family Trust so as to enable the
Finance Trust to come within the definition of “General Beneficiaries” in cl 1(b)(iv) of the
Family Trust Deed.
35. That is because the solicitors who prepared the instruments executed on 17 December
2009 misapprehended the perpetuity period applicable to the Family Trust. The
drafters of the first Record of Resolution, the Notice to Appointor, the second Record of
Resolution and the Nomination by Trustee plainly considered that the perpetuity period
for the Family Trust was 80 years from the date of the settlement (1 April 1980). This is
why 31 March 2060 was chosen in those instruments as the date on which the Finance
Trust was to terminate. It is a date one day before the expiry of the period of 80 years
from 1 April 1980 (the 80 year period specified in the Perpetuities Act not including the
day of the settlement itself: Legislation Act 2001 (ACT), s 151(3)).
36. It is clear that the drafters of the documents executed on 17 December 2009 were
unaware that, as at the date of the Family Trust Deed, the “old law” of perpetuities
continued to apply in the ACT and the reform of the law of perpetuities in the ACT by
the Perpetuities Act did not occur until 1985. The position in Queensland, where the
solicitors were based, was that the old rule had been abandoned in 1974: Property Law
Act 1974 (Qld) s 209. Consequently, they evidently mistook cl 1(i)(i)(A) of the Family
Trust Deed as supplying the applicable perpetuity period and not cl 1(i)(ii)(A) (see the
clause which is set out at [12] above).
37. Once it is accepted that the perpetuity period applicable to the Family Trust was that in
cl 1(i)(ii)(A) of the Family Trust Deed – namely, the expiration of 21 years from the date
of death of the last to die of the issue of King George VI as were alive at the date of the
Family Trust Deed – it follows that the instruments executed on 17 December 2009
were ineffective to ensure that the Finance Trust vested within the perpetuity period
applicable to the Family Trust so that the Finance Trust came within the definition of
“General Beneficiaries” in cl 1(b)(iv) of the Family Trust Deed. This is because it could
not be said that the Finance Trust satisfied the proviso in cl 1(b)(iv) of the Family Trust
Deed, namely, that it “shall vest” within the perpetuity period applicable to the Family
Trust (see [8] above). To do so the “life in being plus 21 years” formula in the Family
Trust Deed would need to produce a vesting date after the vesting date of the Finance
Trust, that is after 31 March 2060. Simplifying matters, it would need to be certain that
the life in being would continue until 31 March 2039 (21 years prior to 31 March 2060).
This would not certainly be the case because it is possible, albeit unlikely, that there
will be no issue of King George VI who were alive as at 1 April 1980 who remained
alive on 31 March 2039, 21 years before 31 March 2060. As the Privy Council made
clear in Air Jamaica, the “old law” of perpetuities was applied “remorselessly” so that if
there was any possibility of a settlement vesting outside the perpetuity period it was
void. There is undoubtedly such a possibility even if it is a remote one. Similarly, for
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the purposes of the definition of “General Beneficiaries” in cl 1(b)(iv) of the Family Trust
deed, it could not be said that the Finance Trust “shall vest within the perpetuity period
applicable to the trusts of this Deed”.
The rectification sought
38. The plaintiffs seek rectification of the first Record of Resolution, the Notice to
Appointer, the second Record of Resolution and the Nomination by Trustee so that
each refers to the termination of the Finance Trust “on or no later than the Vesting Day”
of the Family Trust. This would then allow the appointment of the Finance Trust as a
beneficiary of the Family Trust to be effective.
The remedy of rectification
39. The remedy of rectification is available in relation to unilateral instruments as well as in
relation to instruments between two or more parties: Commissioner of Stamp Duties
(NSW) v Carlenka Pty Ltd (1905) 41 NSWLR 329 at 345 (Carlenka); Re Butlin’s
Settlement Trusts [1976] Ch 251 at 260-262; GE Capital Finance Australasia Pty Ltd v
Federal Commissioner of Taxation (2011) 219 FCR 420 at [105].
40. The simplest kind of case in which rectification is appropriate is where a provision that
was intended to be included in a document is inadvertently omitted, where an
unintended provision is included or where a provision is inadvertently misexpressed.
This is not such a case. In this case there can be no doubt that, in one sense, Ivan or
Jure or both intended to execute documents containing the words that they did. If
rectification is available in this case, it must be because of a misunderstanding as to
the effect of the documents executed.
41. Dr Spry in “The Principles of Equitable Remedies” (9th ed, 2014) says (at 635):
A more difficult case arises where the parties are aware of the precise terms of the
relevant part of the document but misapprehended their effect. Here it appears to
be necessary to distinguish between two positions. The first position occurs where
the concurrent intention, that is, the intention that the document is desired to
effectuate, remains the dominant and governing intention. In this event it should
not matter that the precise terms of the document have been seen by the parties,
and rectification, where otherwise appropriate, should be ordered. So it has been
said by Brightman J [In re Butlin’s Settlement Trusts [1976] Ch 251 at 260],
“Furthermore, rectification is available not only in a case where particular words
have been added, omitted or wrongly written as a result of careless copying or the
like. It is also available where the words of the document were purposely used but
it was mistakenly considered that they bore a different meaning from their correct
meaning as a matter of true construction.” The second position arises where the
parties, whatever their previous intention may have been, have ceased to retain
that intention as their governing intention and have formed instead an intention to
be bound by the precise terms of the document in question, regardless of possible
discrepancies between its provisions and prior or other intentions on their part. In
this event rectification is not appropriate.
...
It should be borne in mind that different considerations apply where the relevant
mistake does not arise through a lack of conformity between a document and the
concurrent intention of the parties, but rather arises through an error underlying but
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not forming part of that intention itself. Where there is no lack of conformity
between the document and the concurrent intention the basis for rectification does
not exist. So an error of law or other error may have related only to the expected
consequences of an agreement and not to what the parties have actually agreed.
(Footnotes omitted)
42. The distinction drawn by Dr Spry is between cases where:
(a) the dominant intention remains so that if the written instrument departs from
that intention it may be rectified;
(b) the previous intention has been abandoned and the parties have agreed to the
terms of the document executed in which case rectification will not be
available.
43. The final passage quoted above identifies the issue which is critical to the
determination of the current case, namely the relationship between a mistake and the
intention necessary to permit an order of rectification. The passage has been referred
to with approval by Sheller JA in Carlenka (1995) 41 NSWLR 329 at 341, 344 and
Young J in Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 at 384 (Baird).
44. In order to understand how to address the relationship between an advisor’s error, a
clients intention and the availability of rectification it is necessary to examine the
authorities. They fall into two categories, those where the advisor’s error was
incorporated into the client’s intention in which cases relief was refused and those
where the intention can be seen to have remained despite the error in implementing
the intention in which cases relief was granted. Another way of categorising the cases,
which is a different (but less legally accurate) way of explaining the same idea, is that
between cases where the advice has led to the wrong transaction and those where the
advice has led to wrong drafting of the document. Rectification is available in the latter
but not the former situation.
Winks
45. In Winks v WH Heck & Sons Pty Ltd [1986] 1 Qd R 226 (Winks) a landowner had sold
timber on his land to a company. Subsequently he sold the land to a third party and
the contract for sale included an acknowledgement of the existence of the contract for
the sale of timber and attached a copy of it, but did not make that contract binding upon
the purchaser. The issue was whether or not the agreement could be rectified. The
Full Court of the Supreme Court of Queensland concluded that there had in fact been a
prior oral agreement that the purchaser would honour the agreement for the sale of
timber: Kneipp J at 232, Thomas J at 237, Shepherdson J at 242. The Court therefore
found that rectification was available notwithstanding that the mistake was as to the
legal effect of the agreement, rather than as to the words used: 233-235, 236-237 243.
Carlenka
46. In Carlenka (1995) 41 NSWLR 329 a trust deed was intended to be amended to allow
distribution of trust income to a company. That was as a result of receiving accounting
advice that there would be tax advantages to the trust and the beneficiaries if the trust
had the power to make such a distribution. In drafting the amendments, the solicitors
had been concerned to ensure that those amendments did not cause any additional
beneficiary to acquire an interest in the corpus of the trust or otherwise vary the rights
of beneficiaries with existing vested interests, because this would have brought about a
13
resettlement of the trust and attracted ad valorem stamp duty. Notwithstanding this
concern, the amendments drafted and made to the deed did in fact have the effect of
entitling the company to a share in the distribution of capital, thereby attracting stamp
duty. This drafting error occurred because the solicitor had misinterpreted the
provisions of the trust deed. The case was therefore one in which the party executing
the documents intended to execute documents containing the words that they did.
However, due to a mistake on the part of the solicitors who drafted the documents, the
words of the documents did not have the legal effect which was intended. The written
instrument that was sought to be rectified was not executed as a result of a mistaken
belief as to what it contained, but instead a mistake as to its effect. The Court of
Appeal unanimously upheld a decision of Brownie J granting rectification.
47. At 331 Mahoney AP said:
In my opinion, the principle upon which rectification is granted involves two things:
that the party (in the case of a unilateral transaction) or the parties (in the case of a
transaction between parties) had at all relevant times an intention which was to be
given effect by the document to be rectified; and that that document does not give
effect to that transaction.
48. Mahoney AP (at 332) went on to define “intention” for this purpose as “that which is
subjectively foreseen and intended to be effected by the document” or “[t]hat which
subjectively the parties sought to achieve and thought they achieved by execution of
the document”. His Honour found that the intention of the director with control of the
corporate trustee was “clear and… formulated precisely”. The intention of the trustee
was that the deed be amended to allow a named company to be a recipient of income
of the trust and that the company should not require any interest in the capital of the
trust. His Honour’s conclusion, which places an emphasis on the significance of those
facts about the trustee’s intention, was as follows (at 332-333):
Mr Mason QC pressed the submission that the intention of the company was to
execute the deed as it was drafted and that that intention was achieved. But that,
in my opinion, does not give proper effect to the principle upon which rectification
is based and of the “intention” which is the foundation of it. That which subjectively
the parties sought to achieve and thought they achieved by the execution of the
document was that to which I have referred. The manner in which or the formula
of words by which those two things were to be achieved were not things to which,
in the relevant subjective sense, the company’s attention was directed. Upon that
basis the deed was apt for rectification.
49. Sheller JA said (at 340):
The plaintiff must displace the hypothesis, arising from the execution of the written
instrument, that it expressed the true intention. Proof sufficient to displace this
hypothesis may be easy or difficult or impossible. Such proof may be more
difficult, in some circumstances impossible, if the words of the instrument are
purposely used or indicate that the parties or party no longer intended to give
effect to the whole of the antecedent intention. Careless copying is one thing.
Omission of some words of limitation necessary to achieve the intention another.
Mistake as to the legal effect of the words used another. The proved intention of
the parties or party may be equivocal or too general or not sufficiently exact or
precise to found relief. But if the claimant convinces that Court that the instrument
does not conform with the intention of the parties or of the party which made it and
14
the intention is clear and precise and can be achieved by the language of an order
for rectification, relief should be available.
50. He referred to the statements of Hodgson J in Bush v National Australia Bank Ltd
(1992) 35 NSWLR 390 at 406 (Bush) that:
... one needs to be able to say that, although in a sense the parties intended to be
bound by a document which included certain words, nevertheless their intention to
achieve a legal effect which was not the true legal effect of those words was
somehow predominant over that other intention, and clearly predominant.
Sheller JA noted that this statement accorded with Dr Spry’s statement relating to
“governing intention”.
51. His Honour’s conclusion placed very significant reliance upon the unchallenged
evidence of the controlling mind of the corporate trustee that “his sole intention was
that, for the purpose of legitimately reducing the income tax payable on distributions
from the trust, a discretionary company income beneficiary be introduced and that any
such company would otherwise have no role or interest in the trust.” In the light of this
evidence, his Honour found no basis for interfering with the trial judge’s finding that the
intention was as expressed and continued at all times up to the execution of the deed
which made the amendment.
52. McLelland AJA said (at 345):
In general, the remedy of rectification of an instrument is available where it is
established by clear and convincing proof that at the time of execution of the
instrument the relevant party or parties as the case may be had an actual
intention (if more than one party, a common intention) as to the effect which
the instrument would have which was inconsistent with the effect which the
instrument as executed did have in some clearly identified way. In this
context “effect” means the legal and factual operation of the instrument
according to its true construction, but does not include legal or factual
consequences of the operation of the instrument of a more remote, or
collateral, kind (for example, its liability to stamp duty).
53. His Honour was satisfied that there was such “clear and convincing proof”.
Baird
54. In Baird (1996) 40 NSWLR 374 advice was received from an accountant as to how to
structure a transaction by which one company would become a subsidiary of another
without incurring capital gains tax liability on the part of three of the four shareholders.
Shares were transferred in accordance with the accountant’s advice. That advice
turned out to be incorrect. Young J found that rectification was not available because
there was no mistake in putting the parties’ agreement into effect. Rather, the
misapprehension was as to the tax implications of the transaction, his Honour saying
(at 385):
Indeed, in the present case, no mistake was made in putting the parties’
agreement into effect. The parties were under a misapprehension as to the tax
implications of the transaction, but this was in the words of McLelland AJA in
[Carlenka] an error with respect to [“]legal or factual consequences of the operation
15
of the instrument of a more remote, or collateral, kind” and is not the type of error
which the Court will recognise as a mistake which justifies rectification.
...
In the present case, the parties cannot say that they did not intend the share
transfer to take effect in the way it did. Unlike the trust deed in Carlenka, which
failed to express the true intention and agreement of the parties, the execution of
share transfers and alteration of the share register was a true reflection of the
parties’ agreement. What the parties appear to be seeking is, in effect, a
rectification of the transaction, and not the documents which embody it. This
cannot be granted because “Courts of Equity do not rectify contracts; they may
and do rectify instruments purporting to have been made in pursuance of the terms
of contracts”: Mackenzie v Coulson (1869) LR 8 Eq 368 at 375 per James V-C.
55. This case is an illustration of where the erroneous advice occurred sufficiently
upstream that it determined what the intention was and hence meant that rectification
was not available. It is an illustration of the incapacity of the remedy to rectify
transactions rather than documents.
Club Cape Schanck
56. In Club Cape Schanck Resort Co Ltd v Cape Country Club Pty Ltd (2001) 3 VR 526
(Club Cape Schanck) there was a dispute between the parties over payment of
sewerage charges pursuant to an agreement between them. Proceedings were
commenced by one alleging a breach of the agreement and seeking repayment of
monies paid under it. The parties entered into an agreement to settle proceedings
which included a clause requiring the parties to negotiate and attempt to agree on new
sewerage treatment charges and, in default of agreement, permitting either party to
make an application to the Administrative Appeals Tribunal of Victoria with the intention
that the Tribunal determine those charges. The parties agreed that the reference to the
Tribunal should also be taken to be reference to its successor, the Victorian Civil and
Administrative Tribunal (VCAT). In fact, the VCAT had no jurisdiction that could be
invoked in the manner contemplated by the clause.
57. The error was an error of one of the lawyers who proposed including such a provision.
Rectification was refused because it was not established that the parties had an
alternative intention if, as was the case, the VCAT had no jurisdiction.
58. Tadgell JA distinguished the matter from Carlenka because the mistake did not result
in a legal and factual operation of the words in the clause which was fundamentally
inconsistent with what the parties agreed it should achieve. Rather the clause was
precisely what the parties had agreed upon, but no words could have been used to
achieve what the parties hoped to achieve. It was significant for his Honour that no
words or expressions or other text inserted into or deleted from cl 2 would give effect to
the parties’ common intention. His Honour remarked (at [14]) that it was not open to
use the remedy of rectification to achieve what the Court or one of the parties
“considers to be the next best thing”.
59. The judgment of Phillips JA (at [39]) emphasised the centrality of the finding of fact that
there was a disconformity between the intention of the party or parties and the effect of
the document:
16
Despite the differences in result that appear from case to case (for example, when
Rose v Pim is contrasted with Carlenka), I venture to suggest that the principle
upon which rectification depends always remains the same; it depends in every
case upon a want of correspondence between the form of the document (that is, in
the words actually used) and the common intention of the parties at the time when
the document is executed. Where the disconformity is the product of a common
mistake, that mistake may be as to what words have been employed in the
document or the meaning or effect of such words as appear. But whatever the
common mistake, the lack of correspondence must be between the form of the
document and the common intention, if rectification is to be available. In Rose v
Pim the parties were mistaken as to the effect of their words, but there was no
disconformity between the words employed and what was held to be their common
intention - and so rectification was not available. In Carlenka, there was a lack of
correspondence between form and intention and so rectification was available. Of
course, whatever the nature or source of the underlying mistake of the parties, the
common intention of the parties at the time of the execution of the document
remains a matter of fact, which accounts, I believe, for such variations as occur in
result. The result in any given case will depend upon whether in the particular
circumstances of that case there is (as a matter of fact) the requisite disconformity
between the document as executed and the common intention of the parties. It is
not enough that the parties have made a mistake about their document (whether
the mistake be about the words used, their meaning or their effect); that mistake
may serve to explain such disconformity (if any) as is seen to exist, but it cannot be
a substitute for it.
60. His Honour concluded that there was no disconformity between the written word and
the common intention as found by the trial judge. Having regard to what the parties’
intention in fact was, there was no form of words that was capable of overcoming their
mistake.
61. Chernov JA said that the agreement between the parties had been made on the wrong
assumption that the tribunal had jurisdiction or power to do what the terms of
settlement contemplated, but there was no mistake as to it embodying their common
intention in the terms of settlement. He therefore distinguished the matter from
Carlenka.
62. Club Cape Schanck is another example of how erroneous advice may become
incorporated into the common intention of the parties and hence prevent rectification
being granted.
Oates
63. Oates Properties Pty Ltd v Commissioner of State Revenue (2003) 53 ATR 308
(Oates) also involved the failure by a solicitor to draft a document sufficient to give
effect to the intention of the solicitor’s instructions. The intention was to appoint a new
trustee to a trust in a manner which, consistently with a ruling by the Commissioner of
State Revenue, would not incur ad valorem duty. In order to do that, an amendment to
the trust deed was needed to be made so as to ensure that trustees could not benefit
under the deed and that amendment needed to be irrevocable. The clear evidence as
to intention was set out in the judgment at [5]-[11]. The evidence disclosed the process
by which the solicitor discovered the relevant revenue ruling and its requirements and
17
then obtained instructions from the plaintiff on the basis that those requirements would
be satisfied.
64. The solicitor who drafted the deed of appointment which included the amendments to
the trust deed believed that it would satisfy the Commissioner and hence not attract
other than nominal duty. However, the amendments drafted failed to give effect to the
intention of the solicitor’s instructions because they failed to include a prohibition on
taking a benefit under the trust deed that was irrevocable. The question for Gzell J was
whether or not rectification could be granted. His Honour said: “This is, par excellence,
a case of mistake of law. The parties were not mistaken as to the provisions of the
deed. They were mistaken as to their legal effect.” His Honour reviewed the
authorities both before and after Carlenka and concluded that there was a
disconformity between the intention established by the evidence and the effect of the
deed of appointment. Further, he found that the plaintiffs had displaced the hypothesis
arising from their execution of the deed of appointment that it expressed their true
intention.
65. Oates is another example of a case where the evidence demonstrated that the
intention was to achieve a particular effect through the execution of a particular
document and the disconformity between that intention and the effect of the document
was sufficient to warrant rectification.
The availability of rectification in the present case
66. The cases in which rectification has been granted (Wink, Carlenka, Oates) have been
cases in which there has been good evidence as to the intention of the parties and that
intention remained at the point of execution of the document so as to create the
disconformity that could be remedied by rectification. The cases where rectification
has been refused (Baird, Club Cape Schanck) are cases in which the intention was a
more remote one and where the error infected the intention so that by the time of
execution of the instrument it was not possible to displace the presumption that the
terms of the instrument reflected the parties’ intention at the time.
67. The evidence in the present case is not very clear as to the background to the advice
from Cleary Hoare. It is certainly not as clear as the evidence that was available in
Carlenka and Oates which descended to the detail of the instructions given by the
plaintiff to the solicitors. In the light of the authorities, this case could be characterised
in one of two ways:
(a) It could be characterised as a case in which the only relevant intention was an
intention to follow the advice of the solicitors. That advice was to execute
documents which would have the effect set out in the letter of 8 December
2009, including the bringing forward of the vesting period of the Finance Trust
so that it ended prior to 1 April 2060. The documents executed were in fact
consistent with that advice. The problem was not a disconformity between the
intention formed by Ivan and Jure and the documents they executed, but
instead a disconformity between the documents and what the law required in
order to achieve the effective nomination of the Finance Trust as a beneficiary
of the Family Trust.
(b) Alternatively, it could be characterised as a case where at all times the
intention was to achieve the appointment of the Finance Trust as a beneficiary
of the Family Trust (as a step along the way to permitting capital gain is to be
18
treated in the manner contemplated by the letter of 8 December 2009) and the
error, although involving an error of law, was a drafting error in giving effect to
that intention.
68. The affidavit evidence of Jure which I have referred to above is not particularly useful.
So far as it contains what appears to be actual recollection, it is in vague terms: see
[23]-[24] set out above. Otherwise it appears simply to recite the contents of the
various documents.
69. Because of the limited evidence of Jure as to his subjective intention, regard must be
had to the documentary material. So far as 8 December 2009 letter was concerned, if
it was not for the statement as to when the perpetuity period for the Family Trust ended
(which in fact incorporated an obvious error) then there would be nothing in the letter
that would detract from the proposition that the governing intention at the point of
execution of the documents was to take the steps necessary to permit the Finance
Trust to be nominated as a beneficiary of the Family Trust. The statement in the letter
“The perpetuity period of the Family Trust ends on 1 April 1980 [which should be 2060]”
is what has the potential to incorporate the solicitors’ mistake into Jure and Ivan’s
intention.
70. Each of the documents provided with the Cleary Hoare letter is consistent with the
intention of the transaction being to permit the valid appointment of the Finance Trust
as a beneficiary of the Family Trust as a step along the way to permitting a transaction
that complied with the ATO Practice Statement referred to in the letter.
71. I am ultimately persuaded that this is a case where rectification can be granted
because:
(a) There is no escaping the fact that the purpose of the transaction was to enable
the Finance Trust to be appointed as a beneficiary of the Family Trust;
(b) The error made was one in the drafting of the document for the purposes of
giving effect to that intention;
(c) The error was a specific error made by the solicitors drafting the agreement,
which could be rectified by an amendment to the wording of the documents
consistent with the identified intention (cf Club Cape Schanck);
(d) The error was one which changed the substance of the transaction, but was
analogous to a technical drafting error rather than one involving a new
transaction or different intention;
(e) The case is clearly distinguishable from Baird where the whole transaction
was shaped by the error and could not be undone. It is also distinguishable
from Club Cape Schanck, because here there is evidence of the intention and
that intention may be given effect to not by adopting a “next best thing”, but by
substituting words which it is clear that the parties would have included but for
the error.
72. In the passage quoted above, Dr Spry talks of the governing intention. In Hodgson J’s
words in Bush the intention must be the predominant intention. In the present case I
have no doubt that the predominant intention was to bring forward the vesting date of
the Finance Trust so as to enable it to be appointed as a beneficiary of the Family
Trust. While the date upon which the Finance Trust was to terminate is fundamental to
19
the formal terms of the transaction, the date itself is of minimal significance and I am
satisfied it was not of any significance to Jure or Ivan except to the extent to which it
achieved the intended effect, namely, the capacity to nominate the Finance Trust as a
beneficiary. It was a matter which was a “complex and legalistic matter” (cf Club Cape
Schanck at [37]) and not a matter which would likely concern Jure or Ivan except to the
extent that it achieved the desired effect. I am therefore satisfied that, notwithstanding
the erroneous references in the documents to 31 March 2060, the predominant or
governing intention of Jure and Ivan when executing the documents was to vary the
vesting date of the Finance Trust so as to enable it to be effectively appointed as a
beneficiary of the Family Trust.
73. The case is distinguishable from Carlenka and Oates to the extent that the change
involves one of substance in order to give effect to the intention of the transaction
rather than involving substituting or adding words containing additional qualifications.
However, given that it is disconformity between intention and document which drives
the remedy of rectification, the substantive nature of the amendment to the document is
not fatal.
74. Accordingly, it is appropriate for the Court to make an order rectifying the first Record
of Resolution, the Notice to Appointor, the second Record of Resolution and the
Nomination by Trustee so that they conform and give effect to the intention of Doma
ACT.
75. Clause 1(f) of the Family Trust Deed relevantly provides as follows:
“the Vesting Day” means the first to occur of the following date, namely –
…
(ii) the date of expiration of the perpetuity period hereinafter defined.
76. Effect can be given to the intention of the documents by substituting in each of the first
Record of Resolution, the Notice to Appointor, the second Record of Resolution and
the Nomination by Trustee the date 31 March 2060 with the words “on or no later than
the Vesting Day of the Domazet Family Trust as defined in clause 1(f) of the Domazet
Family Trust Deed”. This rectification will mean that the vesting of the Finance Trust
will be aligned with the expiration of the perpetuity period of the Family Trust and the
intention of Doma ACT in making the instruments of 17 December 2009 will be
achieved.
77. Declarations consequential upon the rectification of the documents have been sought
to the effect that:
(a) the vesting date of the Finance Trust is on or no later than the vesting date of
the Family Trust;
(b) the Finance Trust is a trust that “shall vest within the perpetuity period
applicable to the trusts of this Deed” within the meaning of cl 1(b)(iv) of the
Family Trust Deed; and
(c) Doma ACT as trustee of the Finance Trust is a “General Beneficiary” within
the meaning of cl 1(b) of the Family Trust Deed.
78. Having rectified the documents, the consequences identified in these orders follow.
The issue between the plaintiffs and the Commissioner was whether or not the form of
20
those declarations should be amended so as to expressly identify that they only took
effect from the date of the rectified documents, namely 17 December 2009. That issue
was productive of a dispute over costs which I address below. In each case the
declarations sought are indicated as being consequential upon the previous orders of
the Court. Thus, they necessarily incorporate the operation of the orders rectifying the
documents dated or signed on 17 December 2009. In those circumstances it is clear
that they could not affect the operation of either deed at an earlier date. Nobody
reading the consequential declarations could be confused about that because of the
express reference to the previous orders. However, the final declaration that is sought
is:
It be declared that by operation of orders 1-6 above, Doma ACT as trustee of the
Doma Finance Trust is a “General Beneficiary” within the meaning of clause 1(b) of
the Domazet Family Trust Deed.
79. In my view, a declaration in that form is not appropriate because although it refers to
previous orders of the Court, it fails to make reference to the actual instrument by
which the Finance Trust was appointed as a “General Beneficiary” of the Family Trust.
I will amend the form of this declaration so as to make specific reference to that
instrument and the date from which it took effect. This has the effect of both putting the
declaration in an appropriate form and addressing the issue raised by the
Commissioner.
Claim for declarations in SC 103 of 2015
80. In proceedings SC 103 of 2015 Jure seeks a declaration to the effect that he and his
three sisters – Betty, Mary and Susan – are within the definition “Primary Beneficiaries”
in cl 1(a) of the Family Trust Deed. That clause provides as follows:
The “Primary Beneficiary” and the “Primary Beneficiaries” mean the person or
persons named and described or defined as such herein.
81. Clause 3 of the Family Trust Deed identifies as the “Primary Beneficiaries” Ivan
Domazet, Helen Domazet and “the children of Ivan Domazet and Helen Domazet”.
82. As at the date of the Family Trust Deed (1 April 1980), each of the four children of Ivan
and Helen Domazet had been born: Betty in 1968, Mary in 1970, Jure in 1973 and
Susan in 1979. The fact that those children had been borne as at the date of the deed
is a surrounding circumstance which legitimately informs the interpretation of the
Family Trust Deed.
83. Adopting the same rules for construction of a trust deed as apply to the construction of
contracts (cf Byrnes v Kendle (2011) 243 CLR 253 at [102]) and attributing to its terms
the meaning which a reasonable businessperson would have understood those terms
to mean having regard to the language used by the parties, the surrounding
circumstances known to them and the commercial purpose or objects to be secured by
the document (cf Electricity Generation Corporation v Woodside Energy Ltd (2014) 251
CLR 640 at [35]), the interpretation of the Family Trust Deed is relatively
straightforward. That is to interpret the words “the children of Ivan Domazet and Helen
Domazet” in cl 3 of the Family Trust Deed as describing or defining Jure, Betty, Mary
and Susan so that they fall within the definition of “Primary Beneficiaries” in cl 1(a) of
the Family Trust Deed. This is so notwithstanding that the names of Jure, Betty, Mary
and Susan do not, in terms, appear in the Family Trust Deed. It is likely that the words
21
“the children of Ivan Domazet and Helen Domazet” were used in cl 3 of the Family
Trust Deed to accommodate the possibility that Ivan and Helen would have children
after 1 April 1980 who could not at the date of the Family Trust Deed be specifically
named. Plainly enough, the other parties, each of whom has entered a submitting
appearance did not advance any alternative interpretation, nor is one apparent.
84. The reason that the declaration was sought was identified in the affidavit of Jure
Domazet of 20 April 2015 as follows:
10. I am advised that an issue of construction of the Domazet Family Trust Deed
has arisen. The issue, as I understand it, is whether Betty, Mary, Susan and I
are within the definition of “Primary Beneficiary” in clause 1(a) of the Domazet
Family Trust Deed. This depends, as I understand it, on whether we are
“persons named and described or defined as such herein” within the meaning
of clause 1(a) of the Domazet Family Trust Deed. That in turn depends on
whether our inclusion within the phrase “the children of Ivan Domazet and
Helen Domazet” in clause 3 of the Domazet Family Trust Deed is sufficient
naming, or description to satisfy clause 1(a) of the Domazet Family Trust.
11. I have caused these proceedings to be commenced to respectfully seek the
assistance of this Honourable Court in the resolution of the issue of
construction referred to above...
85. I was told from the bar table that, at some unspecified time, the Commissioner had not
accepted that each of the children fell within the definition of primary beneficiaries.
There was no evidence as to the circumstances in which that assertion was made.
There was no evidence to indicate that the Commissioner maintained that contention.
There was no other evidence or explanation as to what the “issue of construction” that
“has arisen” was.
86. In my view it is not appropriate to make the declarations sought. That is because there
is no present dispute as to the operation of the Family Trust Deed and no apparent
utility in making a declaration in the abstract. If I am to make a declaration of the
obvious, with which everyone agrees, and which has no identifiable consequence, what
is the point of making such a declaration? If, on the other hand, there is, in fact, some
real controversy then the Court can quell that controversy when the relevant facts are
disclosed and competing arguments advanced. However, no present controversy is
disclosed about the interpretation of the deed. The assertion merely that there is an
“issue of construction” is insufficient.
87. For these reasons, I decline to make the declaration sought in paragraph 1 of the
Originating Application in proceedings SC 103 of 2015.
Costs
88. In relation to the costs of proceedings SC102 of 2015, the Commissioner sought costs
either of the whole of the proceedings or alternatively from 21 May 2015. It relied upon
a bundle of correspondence which became exhibit 1. It sought to characterise the
conduct of the plaintiffs as being unreasonable in refusing to amend their application to
include a statement that the orders for rectification only take effect from 17 December
2009.
89. The concern of the Commissioner was that, having regard to the terms of the orders
sought, there might be some consequence for the existing AAT proceedings relating to
22
the year ending 30 June 2008 or that the plaintiffs might contend there were such
consequences. The Commissioner sought some reassurance that it was not the
intention of the plaintiffs to rely upon the orders in these proceedings in the AAT
proceedings. The position consistently adopted by the plaintiffs was that, in the
circumstances, the orders could only take effect from 17 December 2009 because that
was the date of instruments that were rectified. The correspondence from the plaintiffs’
solicitors did, however, contemplate that there might be some indirect consequences
for the AAT proceedings, because the settlement discussions in relation to those
proceedings have included discussion of later income years which would be affected
by the orders. As a result, the plaintiffs declined to give the assurance sought by the
Commissioner that they would not rely “in any way (directly or indirectly)” on the orders
sought in these proceedings in the AAT proceedings relating to the year ended 30 June
2008.
90. Having regard to the nature of the relief being sought, it is hard to understand how any
declarations could have any effect earlier than 17 December 2009. However, they were
in general terms and the documents which were the subject of the orders for
rectification were brought into existence with the intention of achieving taxation
consequences applicable to the financial year ending 30 June 2008 (documents 1 and
2 in the Cleary Hoare letter).
91. In my view, it has not been demonstrated that the plaintiffs acted unreasonably. The
correspondence from the Commissioner reflected an understandable caution as to the
consequences of the orders sought. The correspondence from the plaintiffs’ solicitor
reflected a reluctance to give the broad undertaking sought by the Commissioner.
While it took considerable correspondence to reach it, the final position articulated in
the correspondence, which precluded any direct consequences for the year ending
2008 but recognised some indirect relationship because of settlement negotiations
which also related to subsequent years, gave each party a clear understanding of the
other’s position and minimised the scope of matters in contention.
92. I have in fact inserted into the declarations that I will make a reference to the date from
which Doma ACT as trustee of the Finance Trust became a “General Beneficiary” for
the purposes of the Family Trust Deed. That was because there was no reference in
the orders to the instrument of appointment which was dated 17 December 2009 and it
appeared to me to be appropriate to tie the declaration to the instrument which effected
the appointment. That, however, is a slightly narrower point than the point raised in
correspondence by the Commissioner.
93. In my view, the appropriate order is that there be no order as to costs.
Orders
94. In proceedings SC 102 of 2015 the orders of the Court are:
1. The record of the resolution by the directors of Doma ACT Pty Limited ACN 116
939 916 (Doma ACT) as trustee of the Doma Finance Trust made on 17
December 2009 be rectified so that paragraph B reads as follows: “The Trustee
desires to determine that the Trust shall terminate on or no later than the
Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the Domazet
Family Trust Deed dated 1 April 1980 (Domazet Family Trust Deed)”.
23
2. The Notice to the Appointor of the Doma Finance Trust made on 17 December
2009 be rectified so that paragraph 2 reads as follows: “The Trustee desires to
determine that the Trust shall terminate on or no later than the Vesting Day of
the Domazet Family Trust as defined in cl 1(f) of the Domazet Family Trust
Deed”.
3. The document entitled “Record of Resolution by the Sole Director of Doma ACT
Pty Limited” made on 17 December 2009 be rectified so that paragraph B reads
as follows: “The Trustee desires to determine that the Trust shall terminate on
or no later than the Vesting Day of the Domazet Family Trust as defined in cl
1(f) of the Domazet Family Trust Deed”.
4. The document entitled “Nomination by Trustee” be rectified so that:
a. paragraph 4 reads as follows: “The Trustee wishes to nominate the
Vesting Day of the Domazet Family Trust as defined in cl 1(f) of the
Domazet Family Trust Deed as the date on which the Trust shall
terminate”;
b. paragraph 5 reads as follows: “The Appointor has consented to the
nomination of the Vesting Day of the Domazet Family Trust as defined
in cl 1(f) of the Domazet Family Trust Deed as the date upon which the
Trust shall terminate”; and
c. paragraph 6 reads as follows: “Pursuant to cl 13 of the Trust Deed, the
Trustee determines that the Trust shall terminate on the Vesting Day of
the Domazet Family Trust as defined in cl 1(f) of the Domazet Family
Trust Deed”
5. It is declared that by operation of orders 1 - 4 above, the vesting date of the
Doma Finance Trust is on or no later than the vesting date of the Domazet
Family Trust.
6. It is declared that by operation of orders 1 - 5 above, the Doma Finance Trust is
a trust that “shall vest within the perpetuity period applicable to the trusts of this
Deed” within the meaning of cl 1(b)(iv) of the Domazet Family Trust Deed.
7. It is declared that by operation of orders 1 - 6 above and the Notice of
Appointment of Additional Beneficiaries dated 17 December 2009, Doma ACT
as trustee of the Doma Finance Trust is, from that date, a “General Beneficiary”
within the meaning of cl 1(b)(iv) of the Domazet Family Trust Deed.
8. There is no order as to the costs of the proceedings.
95. In proceedings SC 103 of 2015 the orders of the Court are:
1. The proceedings are dismissed.
2. There is no order as to costs of the proceedings.
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I certify that the preceding 95 [ninety-five] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop.
Associate:
Date: